"To date, CVRD has indicated that it is not willing to enter into substantive discussions or negotiations with respect to improving the CVRD offer," said Inco in a statement.

Inco's U.S.-listed shares fell 0.2% to $77.25 at the close of trading, while CVRD's U.S. shares fell 0.33% to $21.35. Phelps Dodge
PD, +2.81%
fell as much as 2.2% before ending the day up 0.4% at $88.14.

CVRD's decision leaves Inco's fate, the world's second-largest nickel producer, in the hands of its shareholders.

Inco investors are scheduled to vote on the Phelps Dodge deal on Sept. 7. Two-thirds of all votes placed must be cast in favor of the deal for it to proceed.

Many will likely opt for the all-cash offer, said Kerry Smith of Haywood Securities in Toronto.

"The cash is a better bid," he said. "If the copper market were to drop tomorrow, the share price of Phelps Dodge would drop, too."

Phelps Dodge's shareholders could also derail the deal. The Phoenix-based company, which ranks as the world's No. 3 copper producer, has scheduled a Sept. 25 shareholder meeting to decide on the deal. Just over 50% must vote in favor the transaction to carry it through.

Hedge fund Atticus Capital, which owns about 10% of Phelps Dodge, has said it will vote against the Inco buyout because it believes Phelps should return cash to shareholders or sell itself.

Phelps Dodge has offered 0.672 of a share plus C$20.25 in cash for each Inco share.

The battle for Toronto-based Inco comes amid surging prices for nickel, which is used mainly to make stainless steel. A shortage of inventories and strong demand from China has sent nickel prices to record highs, attracting other metals companies to round out their products by buying specialists like Inco. See full story.

Officials at the Rio de Janeiro-based CVRD declined to comment on Inco's decision.

A spokesman for Phelps Dodge declined to comment on the upcoming shareholder votes, but said: "We appreciate the Inco's board continuing support of our combination agreement."

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